Treasuries Fall as Housing Data Add to Signs of Economic Gains

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Treasuries declined, led by the longest maturities, after a report showed U.S. new-home construction climbed last month to the highest in almost eight years.

Yields rose as signs of economic strength may bolster the Federal Reserve’s case for increasing interest rates this year. Futures show less than a 50 percent probability the central bank will raise its benchmark overnight rate at next month’s policy meeting.

“It’s certainly a factor for the Fed,” said Jim Vogel, an interest-rate strategist with FTN Financial in Memphis, Tennessee. “It’s important for the Fed because it shows a certain breadth of household confidence.”

Benchmark U.S. 10-year note yields climbed about two basis point, or 0.02 percentage point, to 2.19 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. The 2 percent security due in August 2025 fell about 1/4, or $2.50 per $1,000 face amount, to 98 9/32.

The yield on the 30-year bond rose about four basis points to 2.86 percent.

The extra yield that investors demand to hold the long bonds instead of two-year notes rose from close to the lowest since April. The gap, at about 2.1 percentage points, has shrunk in the past month as waning inflation expectations boosted demand for longer maturities.

Futures show a 48 percent probability the Fed will raise its benchmark interest rate at its Sept. 16-17 meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. It has kept its key rate in a range of zero to 0.25 percent since December 2008.

Residential home starts rose 0.2 percent to a 1.21 million annualized rate, the most since October 2007, a Commerce Department report showed Tuesday. The median forecast of economists surveyed by Bloomberg was 1.18 million.